“New orders from foreign clients increased solidly in October, extending the current period of growth to eight months,” says the latest report of the leading service sector indicator PMI, prepared each month by the international agency S&P Global based on 350 surveys. to tertiary companies in Spain. The foreign sector has become the great engine of our economy, with a crucial role of exports of services and with a structural transformation: this strength goes beyond tourism, and is concentrated in sales of consulting, engineering, architecture or related to technology or telecommunications.
At the end of October, after knowing the increase in GDP (Gross Domestic Product) of 0.8% in the third quarter, the most notable in the eurozone – and which indicates that 2024 will close with an activity growth of 3 %—, the Minister of Economy, Carlos Body, influenced the behavior of exports of non-tourist services. Agreeing with him and most experts, economist Daniel Kral, from Oxford Economics, stressed: “It is a success story.” This analyst shows in the first graph (with data from the INE) that collects this information that service exports exceed their trend prior to the historic shock of the pandemic. It is the only component of GDP that does so, along with “public consumption” —this last factor is directly related to the spending effort of the Administrations to alleviate the consequences of COVID and the inflation crisis, and promote recovery —.
But the great change in the economy must be studied in more depth. “It’s not just thanks to the recovery in travel since the worst moment of the pandemic. High value-added services have contributed more to the growth of services as a percentage of GDP,” continues Daniel Kral. This statement can be verified in the second graph of this report. The sum of the contribution of exports of “consulting”, “telecommunications”, “financial” and “insurance” services, “research” is greater than sales related to “travel” and tourism, according to the National Accounts of the INE, in this case with data until the second quarter of this year.
“An element that explains the differential growth of Spain [sobre todo respecto a una Alemania y Francia estancadas] “has been the positive contribution of net foreign demand, which reflects both the expansion of service exports and the relative moderation of imports,” says the Independent Authority for Fiscal Responsibility (AIReF), in a report published this week.
“The good performance of tourism income stands out, which, far from exhausting its dynamism, maintained a notable expansion in the summer of 2024, with increases in average spending per tourist, a less marked seasonal pattern of visits and greater diversification of the countries of origin of tourists and destinations within our country”, continues this institution, which concludes: “To this is added the notable growth of exports of numerous non-tourist service activities such as professional activities, financial services, information and telecommunications, which constitutes a common feature of other European economies.”
“There are signs that seem to indicate a structural change in our economy: economic growth compatible with new, more qualified and technical employment, compatible with increases in productivity and also compatible with a surplus balance of goods and services largely thanks to the rise of non-tourist services . It remains to be seen whether the Spanish economy is capable of taking advantage of this window of opportunity to consolidate an economic model that stops being based on low costs and moves to one with greater added value and, therefore, more resilient,” says Natalia Arias, economist at the economic cabinet of Workers’ Commissions (CCOO).
Qualified and ‘cheap’ workers
This great change in Spain’s foreign sector has positive causes and effects on the entire economy and the labor market, and it has not been exhausted. “Confidence in the future remained high in October. The [empresas del sector servicios] surveyed expect market conditions to remain positive,” states the October PMI report from S&P Global.
“Businesses continue to look for additional workers to meet growing demand. The employment rate [del mismo PMI] reached its highest level in 18 months, which underlines the confidence and momentum in the services sector,” concludes this same analysis center. Precisely in the labor market there is a key to understanding the “success story” of service exports. Daniel Kral talks about “the accelerated changes caused by the pandemic in relation to remote work and the advancement of digital technology, which Spain is taking advantage of thanks to its highly qualified workforce and traditionally high youth unemployment (so there is a good supply of labor).
That is, according to this economist, our country is benefiting from several circumstances. First, having a broader supply of qualified workers than other countries with a similar level of training but smaller ones or that started from a lower unemployment rate. Second, these workers earn less than in other large European economies. Third, a good part of these profiles are young people.
“It is a globally competitive landscape, although other potential sources, such as Eastern Europe, are no longer as competitive in terms of costs, due to their economic convergence, and are reaching limits in terms of labor supply, since companies cannot fill positions with highly qualified workers,” adds the Oxford Economics expert.
A first, more detailed analysis of the balance of payments (the data on trade in goods and services abroad published by the Bank of Spain) and the Active Population Survey (the EPA of the INE) allows us to approximate this conclusion. “Between the first half of 2018 and the second half of 2024, (gross) exports of non-tourist services increased by 72%,” says the CCOO economic cabinet.
According to the union, this increase is mainly explained by the following subsectors. First, for “other business services [explica la mitad del incremento]”. Here the category “technical, related to commerce and other business services” stands out, which explains a third of the growth and is a ‘catch-all’ that is made up of engineering, architecture, commercial activities, security, waste treatments… On the other hand, “professional and management consulting” is responsible for almost 15% of the increase. The other important subsector is “telecommunications, computing and information”, which explains almost a fifth of the growth in exports of non-tourist services. Finally, “transportation” (9%) and “financial services” (9%) contribute on a smaller scale.
It is also interesting to analyze the increase in these exports by geographical destination: 71% of the increase is concentrated in the European market, particularly in the EU (mainly in France, Germany and the Netherlands). Outside the EU, the North American market also stands out.
If this information is attempted to match the information and categories of the labor market provided by the EPA, it can be seen that, indeed, the companies in the subsectors of the non-tourist services sector that have accounted for most of the growth in exports In recent years, employment has increased more than the economy as a whole, as can be seen in the third graph of this information, with data that compares the third quarter of 2019 with the same period of this year — it is an approximation exercise because these sectors have also improved their domestic sales.
If we go up one more step in the EPA study, and introduce age as a variable, we see that the increase in employment among the youngest in the sectors that export the most services is even more important, as can be seen in the last graph of this information.
In a recent in-depth analysis of the Salary Structure Survey (EES) of the INE of elDiario.es, it can be verified that young people are among the most precarious workers. Our country “has the most educated population in its history, which in fact our economy is not capable of inserting and rewarding accordingly. A qualified population, good telecommunications and digital infrastructure, a common language for 500 million people, salaries lower than those of other European countries, the ability to continue incorporating a qualified population due to the still high levels of unemployment and inactivity, favor Spain being able to increasing its volume of activity in these sectors, improving its external balance in non-tourist services,” reflects Luiz Zarapuz, CCOO economist.
“The development of these branches of services with higher added value may be based initially on initially lower salaries, but in the medium term the greater demand for these profiles/occupations should translate into salary improvements, job creation and a decrease in unemployment. To the extent that these sectors demand more workers, they can attract workers from other lower-paid sectors that seek to improve. In any case, working conditions are not determined only by the added value generated by the activity, nor by the qualification of its workers, but by their capacity for collective organization through unions and thus achieve labor and salary improvements,” he concludes. this expert.
Weakness in business investment and goods exports
“On the other hand, exports of goods continue to show very modest progress in line with the weakness of demand from the European countries that constitute our main export markets and the competition from China in very relevant sectors of Spanish export specialization, such as automobile,” AIReF laments in its report.
Another weakness of Spain’s economy is business investment. Daniel Kral believes “it has been surprisingly weak in Spain, given that it is a large net recipient of EU funds.” [del Plan de Recuperación] and has strong growth overall. As interest rates fall, demand prospects improve and the absorption of European funds accelerates (the deadline for absorption of the Recovery Plan is August 2026), this should be positive for capital investment.”
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